Impact investing, which has long been a niche segment confined to private equity, continues to gain ground – which is good news. This type of strategy is focused on companies that are committed to tackling the major environmental and societal challenges. The need to find solutions becomes more pressing with each day. The second piece of good news is that the more this issue becomes an established part of portfolios, the wider the range of opportunities grows, on both public and private markets.
On listed markets, one of the most obvious approaches involves selecting companies that are committed to taking action on climate change by promoting carbon neutrality, growing the circular economy or adapting to the consequences of climate disruption. These companies are clearly of interest in terms of potential, since their growth can be based on three pillars: innovation, changes in regulation and changes in consumer demand. The attention paid by investors to the future champions of climate intelligence or the energy transition is therefore entirely justified.
Another substantial challenge to which investors can contribute is safeguarding biodiversity. This is about also incorporating a “nature positive” dimension into their investment decisions. Intricately linked to climate, biodiversity has become a major planetary emergency. Many different companies are developing solutions to safeguard biodiversity, in fields ranging from eco-friendly agriculture to the development of urban green spaces. Nutrition is another issue that is worth considering. Given that the food system is responsible for 25% of global greenhouse gas emissions, and we will need 50% more food by 2050, our habits will have to change. Food Tech, a sector completely absent from the stock market a few years ago, comprises a pool of promising, innovative companies, particularly in the field of alternative proteins.
Due to its lead in terms of regulations, the European market is particularly well supplied with companies which make an impact. However, since the challenges are global, the investment world certainly does not limit itself to this continent alone. Emerging markets, where the challenges are especially acute, are also home to companies active in sectors relating to the environment (for example generation of renewable energy, infrastructure or community services), as well as in social sectors (health, financial inclusion, education and so on).
Alongside public markets, investment on private markets is another lever for impact that can take a variety of forms, such as funding environmental start-ups or specific actions on social issues. Take the example of housing. Several European countries are facing a growing shortage of affordable housing, which is putting pressure on many families. In countries where the shortages are most acute due to a lack of sufficient traditional financing, it is private actors, including private debt funds, who are financing some of the construction effort. For the investor, this is a defensive investment combined with the potential for attractive returns. For households, it offers the promise of a reduced wait for access to affordable housing.
Whether on private or public markets, investors who are seeking to make a positive impact while achieving financial performance can now invest their capital in various ways.
